Nepal Rastra Bank’s First Quarterly Review: No Major Policy Changes Anticipated

Nepal Rastra Bank (NRB) is set to publish the first quarterly review of its monetary policy for the current fiscal year on Friday. The review comes amid widespread interest from the banking, business, and stock market communities, all of whom have varying expectations for potential policy adjustments. However, early indications suggest that the central bank plans to maintain the status quo, with no significant changes anticipated.

Although the data for the first quarter was released last week, the review's publication was delayed due to the absence of Governor Maha Prasad Adhikari. NRB is mandated to conduct quarterly reviews within 45 days of the quarter's end, prompting the planned release. This regulatory timeline underscores the importance of adhering to policy review schedules, especially during a time of economic challenges.

Discussions at the top management level of the central bank reveal a cautious approach. NRB seems committed to retaining its existing policy framework. This continuity signals the central bank’s confidence in its current measures and the belief that further assessment of their impact is required before implementing substantial changes.

Businesses, bankers, and investors have lobbied for adjustments, particularly in areas like reducing the risk weightage on share collateral loans and lifting limits on such loans. These demands stem from the need to improve liquidity and boost investment confidence. However, NRB’s reluctance to address these requests suggests a more conservative stance aimed at maintaining financial stability rather than taking risks that could lead to volatility.

For the stock market, the lack of anticipated policy changes could be a disappointment. Investors had hoped for measures that would ease the pressure on share-based loans, thereby fostering growth and activity in the market. NRB’s current position aligns with its historical approach, where the first quarterly reviews generally focus on assessing the effectiveness of implemented policies rather than introducing new ones.

NRB’s decision to hold back on major changes reflects a delicate balancing act. On one hand, the central bank must address calls for more flexibility to stimulate economic activity. On the other, it must ensure that any adjustments do not jeopardize financial stability. This cautious approach may also indicate NRB’s focus on longer-term impacts rather than short-term gains, leaving room for potential modifications in subsequent reviews based on the outcomes of current policies.